Houston Industrial Market Report
Houston Key Findings
- Houston’s industrial market is experiencing a turning point. Demand is above historic norms, vacancies are stabilizing, and the supply wave is nearly over.
- Leasing volumes continue to be over 35% higher than in 2017-2019, as occupiers in manufacturing and logistics continue to grow.
- The strength of tenant demand in Houston is very strong. Absorption rates are much more robust than most major U.S. markets.
By the Numbers
Past 12-Months | Source: CoStar Group
| 5k-50k Sqft | 50k-100k Sqft | 5k+ Sqft / All Tenant | |
| Inventory SF | 154,000,000 | 75,100,000 | 763,000,000 |
| Under Construction SF | 758,000 | 649,000 | 13,700,000 |
| Net Absorption SF | 199,000 | 176,000 | 18,900,000 |
| Vacancy Rate | 4.4% | 3.0% | 6.5% |
| Availability Rate | 6.0% | 6.0% | 9.1% |
| Available SF | 9,300,000 | 4,500,000 | 70,600,000 |
| Market Size-Buildings | 9,700 | 1,092 | 17,896 |
| % of Market Sold | 5.1% | 4.8% | 5.3% |
Houston Demographics
- Unemployment Rate: 4.6%
- Current Population: 7,622,886
- Households: 2,790,457
- Median Household Income: $78,759
Houston remains one of the nation’s best-performing job growth markets, creating more than 60,000 positions in the previous 12 months through October 2024. The labor market today employs over 280,000 more people than it did before the pandemic, one of the country’s largest gains. Nonetheless, job growth is slowing, as is the case across the nation. As the year comes to a close, Houston’s three-year streak of six-figure annual job growth is set to come to an end.
Market Performance
The recent supply surge has slowed annual rent growth to 1.7%, which is much lower than the 10-year average of 3.3%. Market segments with lower availability rates, such as small-bay industrial, are expected to perform well. Nonetheless, a significant drop in new development suggests that rent growth may reaccelerate late next year. Sales volume in Houston is expected to stay below historical norms through year-end, owing to a continuing tight lending climate and a bleak short-term outlook for rent growth. Transaction activity may pick up in 2025. Nearly $200 million in industrial loans will mature in 2025, and current owners may be unable to refinance in today’s high-interest rate climate, pushing some to sell assets. The midterm outlook is more positive. With new supply expected to fall considerably after 2024, rent growth has the ability to reaccelerate, which may appeal to investors, particularly if financing costs fall.
Houston Industrial: Key Economic Indicators
Employment
Employment Growth in Houston over the last 12 months has equated to 62,800 jobs, or an expansion of 1.84% through November 2024. While job growth has cooled from levels recorded in 2021 and 2022, the November 2024 pace is in line with pre-pandemic annual employment expansion.
Wages
Average hourly earnings are little changed on an annual basis at +0.1% through November 2024. Cooling in this metric was expected after wages grew by more than 7.0% in both 2022 and 2023.
Local Inflation
CPI in Houston Accelerated in 3Q 2024, rising more than 50 basis points from the 2Q level. Despite the rise, inflation registered at just 2.1% in the metro, a level much closer to the Fed’s 2% goal than the national CPI level.
Construction Activity
The City of Houston recorded a substantial increase in the amount of new construction being permitted. In the first 11 months of 2024, the city approved nearly $40 Billion in construction, a 30% increase from the same period a year prior. The largest increase was in the nonresidential category, which grew by 43%. Increasing construction activity bodes well for industrial demand, specifically storage facilities for raw materials or construction equipment. Employment in the construction segment of Houston’s workforce has been more robust than any other sector. Builders expanded local payrolls by 6.9% annually through November 2024, a positive sign after construction employment softened in the first half of 2024.
Purchasing Managers Index
The Overall Purchasing Manager’s Index for Houston rose to 53.2 in November, its highest level since the start of the year. Critically, the new orders component of the index grew 2.7% and is rising, a positive sign for industrial space demand in the metro.
Port Activity
The Port of Houston is having one of its most active years on record with 3.12 million TEUs moved through the first 9 months of 2024, a 10% increase over the same time-period last year. The Port is actively expanding its “Project 11” upgrades, which will widen the channel and facilitate even more volume over the coming years. Houston is well positioned to benefit from growing trade disputes with China, as Houston remains a top option for shippers and companies looking to transport goods from Latin America to The United States, and vice-versa.
Home Sales
Brokers secured deals for 6,559 housing units in November 2024, a 6% increase from the same month in 2023. Luxury home sales and homes priced under $100,000 recorded the strongest growth, with both ends of the spectrum recording year-over-year growth above 20%. On the other hand, listings of single-family homes, townhomes, and condos in Houston reached 27,609, the highest level in the metro area since 2019.
Vehicle Sales
Car, Truck, and SUV sales year-to-date through November show a 0.3% increase from the first 11 months of 2023. The car segment is down annually, largely driven by consumers’ reaction to heightened borrowing costs. The Truck and SUV segment recorded 1.3% growth, highlighting the brisk pace of industrial enterprise growth in Houston.
The Houston industrial market is nearing the end of a record growth period. Last year, more than 37 million square feet were delivered, ranking second in the country behind DFW, which provided twice as much. Quarterly net supply increases are expected to fall below the 2017-2019 three-year average by early 2025. Annually, fresh supply in 2025 is expected to reach an eight-year low. Construction starts in the first three quarters of 2024 totaled 9 million square feet, the lowest since 2012. With financing rates and construction costs unlikely to reduce significantly in the near future, groundbreakings are expected to slow further in the coming months, putting pressure on supply in the medium term.
Sales Velocity
Sales volume in Houston is expected to stay below historical norms in Q4 2024, due to a continuing tight lending climate and a bleak short-term outlook for rent growth. Around $200 million in industrial loans will mature in 2025, and current owners may be unable to refinance in today’s high-interest rate climate, pushing some to sell assets. The mid-term prognosis is more positive. With new supply expected to fall considerably after 2024, rent growth has the ability to reaccelerate, which may appeal to investors, particularly if financing costs fall.
